FOS stats reveal the rise of 'Swiss cheese' cover

Recent Financial Ombudsman Service stats show that the number of insurance complaints is increasing. How can the industry balance rising customer expectations with the race to the bottom on price?

The Financial Ombudsman Service has just published its Annual Review this week, and as usual there's a wealth of data to pore over and analyse. It's no surprise to see that, as the percentage of complaints about PPI falls this year from 86% to 82%, the number of complaints about non-PPI insurance goes up from 14% to 18%. But it's not just the fall in PPI complaints bumping up the numbers. The shocking news is that insurance complaints have shot up all round: for instance, the number of travel insurance complaints has jumped by 41%, motor insurance have increased by 38%, and mobile phone insurance have gone up a whopping 53%. But it doesn't stop there. Virtually every insurance product covered by FOS has seen significant increases, including: buildings, contents, pet insurance, extended warranties, private medical insurance, income protection, critical illness, specialist, building warranties, and caravan. The only insurance products which have stayed the same or dropped since last year include personal accident, card protection, business protection and legal expenses, which are more niche areas.

Increasing customer expectations

In mainstream retail insurance there are more complaints than ever. What's going wrong? The breakdown by type of complaint shows that complaints about claims are up from 56% to 59%, with complaints about administration and sales pretty evenly split with 22% and 19% respectively. It looks as though the trend for more mis-sale complaints may have calmed down somewhat this year. Claims is now the biggest issue by far. Perhaps now that consumers are more conscious of checking whether their insurance really meets their needs, they are now expecting more value from their existing cover. Of course the primary value of insurance is what happens when someone makes a claim. As Tom Baigrie of Lifesearch said recently, the claim is the product. But when price comparison websites are busy driving prices down, the only way this can be achieved is by cutting corners on cover. This fixation on price results in 'Swiss cheese' cover - cover with a lot of holes in it. No wonder more and more customers are complaining!

But complaints handling is improving

One small consolation for insurers is that FOS is upholding slightly fewer insurance complaints. Whilst new complaint numbers have gone up, uphold rates have gone down from an overall average of 35% to 31%. So insurers are getting their claims decisions right a little bit more often. But there's no room for complacency here. The uphold rate for travel insurance is still too high at 38% (down from a massive 48% last year). The average uphold rate for motor insurance is 30% and health insurance is 26%. Although these rates are slightly down from the previous year, it's too early for insurers to pat themselves on the back. There is still a huge amount of work to do to reduce the uphold rate to a more acceptable number. If insurers are letting down 4 in 10 or even 3 in 10 of their customers, that's nothing to be proud of. There is a positive correlation between uphold rates and consumer trust. If insurers want to restore customer's faith, they need to roll up their sleeves even more and get their decisions right, first time.